Pensions shake-up: Millions of savers shut out of 'pensions revolution' by punishing fees

MILLIONS of savers will be shut out of the Government’s “pensions revolution” by punishing fees, experts warned yesterday.

By 55, savers will lose the freedom to use retirement pots how they like unless they pay charges [GETTY]

As they reach 55, many savers will be denied the freedom to do what they like with their retirement pots unless they pay charges that could eat up a fifth of their value.

Under reforms trumpeted in his Budget, and now going through detailed development, George Osborne aims for everyone from the age of 55 to have dramatically more choice over what to do with their savings.

The Chancellor wants people not only to have a much wider variety of annuities to buy from next April, but to be free not to buy an annuity at all.

Lib Dem Pensions Minister Steve Webb said he would not mind if people blew their savings on a sports car then relied on the state pension.But experts fear parts of the industry will make it too expensive for many customers to access their cash as freely as the Government envisages.

This is because ministers have decided not to make every scheme offer members flexibility.

Stronger transfer rights mean schemes which do not offer flexibility will have to let customers move their money to one that does.

But there are no plans to ban them from charging early exit fees – which can be in double digits – or fees to set up new deals.

This is going to be disappointing for so many people. I understand why there may need to be a small admin fee for a transfer but 20 per cent would be outrageous

Dr Ros Altmann

Steve Wilson, of Alan Steel Asset Management, said insurers would not want to invest in computer systems to manage new pension schemes only to see cash flow out of their coffers.

He said: “Penalty charges of four per cent for each year you go early are not untypical on some policies.”

With many pension plans based on a retirement age of 60, workers could lose 20 per cent of their income if they access their cash at 55.

Several major insurers have indicated that some customers, particularly older people with contracts that pre-date the computer age, might have to switch policies – and pay to do so.

Billy Mackay, of AJ Bell, warned some people were “handcuffed” to old-style pensions by high penalties for cashing in savings early.

Several companies are reviewing their rules but will not finalise decisions until detailed legislation is published.

Actuaries predict most company schemes will make members switch at least part of their savings to another body to handle “random” withdrawals – and workers rather than employers will have to meet the cost.

Dr Ros Altmann, the new Government “champion” for older workers, said: “This is going to be disappointing for so many people.

“I understand why there may need to be a small admin fee for a transfer but 20 per cent would be outrageous.”

The Treasury said the vast majority of people would be able to transfer without fees and none would be locked out of the new freedoms.

The Association of British Insurers said the industry was working “flat out” to make sure everything savers need is in place by next April.